nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2018‒04‒23
two papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Forensics, Elasticities and Benford's Law: Detecting Tax Fraud in International Trade By Javorcik, Beata; Pakel, Banu Demir
  2. Job Satisfaction among Young Workers in Eastern and Southern Africa: A Comparative Analysis By McKay, Andy; Newell, Andrew T.; Rienzo, Cinzia

  1. By: Javorcik, Beata; Pakel, Banu Demir
    Abstract: By its very nature, tax evasion is difficult to detect as the parties involved have an incentive to conceal their activities. This paper offers a setting where doing so is possible because of an exogenous shock to the tax rate. It contributes to the literature by proposing two new methods of detecting evasion in the context of border taxes. The first method is based on Benford's law, while the second relies on comparing price and trade cost elasticities of import demand. Both methods produce evidence consistent with an increase in tax evasion after the shock. The paper further shows that evasion induces a bias in the estimation of trade cost elasticity of import demand, leading to miscalculation of gains from trade based on standard welfare formulations. Finally, welfare predictions are derived from a simple Armington trade model that accounts for tax evasion.
    Keywords: Benford's law; border taxes; tax evasion; trade financing
    JEL: F10
    Date: 2018–03
  2. By: McKay, Andy (University of Sussex); Newell, Andrew T. (University of Sussex); Rienzo, Cinzia (King's College London)
    Abstract: The creation of job opportunities for the increasingly educated youth population is a major current policy challenge in sub-Saharan Africa, even though very little is known about the extent to which young workers in the region are satisfied with the employment they currently have. This paper aims to help to fill this latter gap by presenting an analysis of job satisfaction of youth aged 15-29 in four countries from Eastern and Southern Africa: Madagascar, Malawi, Uganda and Zambia. We estimate ordered probit models of the degree of satisfaction in a respondent's main job, using data from the School-to-work Transition Survey (SWTS). It turns out that while a majority of workers are satisfied with their work, a large minority are not. We find that being over-educated or under-educated for the current job is strongly and negatively correlated with job satisfaction in all four countries. With respect to employment status, we find that those who report having chosen to be self-employed are substantially most satisfied in all four countries compared to formal sector wage employees, after controlling for many other factors. Formal wage employees are more satisfied than informal employees in only two of the four countries. These results reinforce the case made by Fields (2014) for not assuming that all self-employment is a 'last resort'. They also raise questions about the quality of available wage jobs for young people.
    Keywords: job satisfaction, young workers, Eastern and Southern Africa
    JEL: I31 J28 O55
    Date: 2018–03

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